Have You Addressed The Expected 47% Overrun?
There’s a litany of disastrous large-scale construction project cost calamities.
An English high speed rail route has the backing of each major party. Work began – kind of – in 2017.
Yet myopic opponents from the fringes are ferociously vocal.
They’re trying to get official documents released that, they claim, fatally undermine the business case.
One additional argument they deploy to strengthen their view, is that
the history of infrastructure projects shows total average cost overruns of 47%
So, their stance is that this type of government investment through the ages suffers from costing half-as-much again as originally planned.
I initially found this stat difficult to believe.
The internet revealed one 2003 global study of 250 such projects. The four authors found;
- 86% of the projects had cost overruns compared to forecasted costs. The average overrun was 28%.
- The overruns were highest in rail projects with cost overruns of 45%. For roads it was 20%.
Then there’s the Olympics. For which one of the same researchers calculated that;
For the period 2000–2010 average cost overrun was 47%
Perhaps this is where the above anti-train lobby number comes from.
Compounded by the infamous effect of ‘project creep’. When the spec changes post-sign-off, meaning requirements (and price tag) balloon.
In fact, London 2012 is a prime example. The entire event came in half-a-billion under budget. A worthy achievement. Yet this amended funding commitment ended up being massively greater than the original bid document set out. All because the excitement of winning (beating Paris…) led to increased ambition for the extravaganza itself and, crucially, ongoing legacy success.
So how handy is this overrun card one to play on a bid?
As an incumbent, alluding to high switching costs is a common retention tactic.
Whilst not every sell is an obvious megaproject, it is still often a big undertaking for someone.
Many a solution-sale trap is set for competitors renowned for outrageously under-cooked on-costs.
Yet as a sustainable seller, maybe the most fertile land is around risk mitigation.
The aforementioned study recommended more resources than typically used, specifically for technical and risk evaluation, and the earlier the better, would help greatly.
As a proposer, to acknowledge that overrun is a possibility – no matter how unlikely – could well be to own the issue.
You get to frame it. You get to benefit most from it as a concern.
Provided of course, you have both concrete plans for avoiding such consequent penalising accounting, and a demonstrable track record elsewhere in matching budget to actual spend.